How Yelp Goes to $40

Pacific Crest thinks the local business review site has more upside from here.

NEW YORK ( TheStreet) -- Yelp ( YELP) shares have been a big winner this year, gaining more than 80% year-to-date. One research firm thinks there's more upside from here.

Pacific Crest analyst Evan Wilson initiated coverage on the San Francisco-based Yelp, starting shares at "outperform" with a $40 price target. Wilson believes that Yelp, which provides users with reviews of local businesses, is poised to benefit from the coming boon in mobile advertising, with its 39 million user-based reviews. "The depth of its reviews is a very valuable commodity and difficult to replicate," Wilson wrote in the report. "Yelp's biggest innovation was combining a user review site with community features and a modern desktop and mobile interface."

The local advertising market is expected to surpass $100 billion in 2013, according to Borrell Associates, and that's precisely where Yelp plays. As a review site, it's able to attract local advertising, and since it's also a social network, it can benefit from mobile.

Wilson estimates that Yelp can do $224.5 million in revenue in fiscal 2013, up from $137.6 million in 2012. He believes revenue could reach as high as $330 million in 2014, noting Street estimates for the second half of 2013 and 2014 "look conservative."

Yelp was able to demonstrate strong year-on-year revenue growth, led primarily by advertising, in its most recent quarterly results. For the three months ended in March, Yelp's revenue rose 68% year over year to $46.1 million.

Yelp has been able to benefit from its relationship with Google ( GOOG), which integrates Yelp's results into its search engine, though it's still a detriment in the long run. According to Wilson, 37% of Yelp's traffic is derived from search, with 32% coming from Google. Wilson notes that as Yelp continues to build its brand and build out its mobile strategy, desktop traffic should continue to decline. Yelp is still very reliant on Google, which has its own review site, Zagat, and gives priority to it over Yelp.

"It is essentially squeezing out Yelp listings from the users' sight and from its search results," Wilson wrote in the report. "Google's influence could be a significant overhang on Yelp's traffic."

Shares of Yelp were higher in early Tuesday trading, up 3.03% to $35.05.